RPF0346-Jules_Haas_Interview
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00:00:30.240 | Welcome to Radical Personal Finance, the show dedicated to providing you with the knowledge,
00:00:35.640 | skills, insight, and encouragement you need to live a rich and meaningful life now while
00:00:41.640 | building a plan for financial freedom in 10 years or less.
00:00:45.400 | On today's show, my guest is Jules Haas.
00:00:47.840 | Jules is an attorney specializing in real estate and estate planning.
00:00:51.520 | Jules, you live and practice in New York City, New York State, where in New York are you?
00:00:56.240 | Yes, good morning, good afternoon, Joshua.
00:00:59.840 | Yes, my office is in Midtown Manhattan.
00:01:04.160 | I am at 845 3rd Avenue, New York, New York, which is Midtown Manhattan, which is between
00:01:11.840 | 51st and 52nd Street, for those of your audience that know the Manhattan landscape.
00:01:18.120 | So I invited you on today to talk about real estate, and we'll talk about it on a more
00:01:24.160 | kind of technical advanced level.
00:01:27.120 | Specifically what I want to discuss with you to start with is the concept of entity selection.
00:01:33.280 | Before we do that, I'd love for you just to sketch out a little bit of your resume.
00:01:38.000 | How did you get involved in the area of real estate law and estate planning law?
00:01:44.120 | Okay, sure.
00:01:45.360 | Well, I've been practicing for over 30 years, and it's sort of like many things that you
00:01:53.800 | do, it's sort of like where you sort of end up.
00:01:57.520 | When I started practicing, the firms that I work with originally dealt with estate,
00:02:04.640 | estate planning, all sorts of trust and estate issues, and real estate as well.
00:02:11.680 | This is New York City, so it's hard to actually do anything in the practice of law without
00:02:18.520 | running into some sort of real estate issue.
00:02:23.440 | In New York City, real estate really is a very large umbrella, because you're dealing
00:02:29.360 | with all types of different entities that qualify as sort of real estate.
00:02:36.720 | You're dealing with the regular type of real estate that you might know as a house,
00:02:42.480 | commercial buildings, you have condominiums, you have co-op apartments, and all of these
00:02:48.400 | things have various flaws and complexities unto themselves.
00:02:52.800 | Then you're dealing with leases and the full area of real estate.
00:02:58.920 | It's really quite encompassing, and New York City's certainly a very challenging and complex
00:03:05.920 | place for those of your audience that have ever dealt with issues or transactions in
00:03:14.960 | the city area.
00:03:15.960 | It's a little bit mind-boggling to me to even consider the idea of trying to work in
00:03:22.160 | an area like real estate in New York City.
00:03:24.200 | I don't know, maybe I'm too much of a country bumpkin to be comfortable in that type of
00:03:30.240 | environment, but I've got to imagine it's led to some interesting cases for you to practice
00:03:33.680 | on.
00:03:34.680 | Yes, it's always a challenge.
00:03:37.760 | Even the simplest type of transaction where you just want to do a closing can get quite
00:03:44.480 | involved, particularly where you're dealing with various issues concerning real estate,
00:03:50.080 | whether it's certificates of occupancy, whether it's zoning problems, whether it's building
00:03:55.200 | code issues, you name it.
00:03:57.760 | When you're dealing with the city of New York, you can imagine the layers and layers of regulations
00:04:04.080 | and conditions that you have to deal with.
00:04:08.160 | Well, that's good for your job security, so we can be thankful for that.
00:04:11.360 | Well, that's true.
00:04:12.920 | I was going to say that's true, but at the end of the day, sometimes you say, "Well,
00:04:22.720 | this is a bit much for even this transaction," but you're right.
00:04:28.400 | I want to begin simple, but we need to establish just some preliminary groundwork specifically
00:04:34.920 | due to location.
00:04:36.640 | If I'm considering – let's say I am a real estate investor and that's who our
00:04:42.400 | conversation is going to be geared toward.
00:04:44.920 | If I'm considering investment property and I'm considering taking advice, you're
00:04:48.920 | in New York City, I'm in West Palm Beach, Florida, and I have listeners in Wyoming.
00:04:52.960 | How much of real estate law is federal versus state in character?
00:04:59.040 | Okay.
00:05:00.040 | Well, for the most part, real estate law is really state-oriented.
00:05:08.880 | There are buildings and different issues, environmental or whatever, that may go over
00:05:14.360 | into the federal area, and certainly there's federal housing and all sorts of things that
00:05:19.520 | you have to deal with if you're dealing with commercial properties where you're
00:05:25.680 | dealing with tenants that might be in federally subsidized housing, but for the most part,
00:05:33.080 | real estate rules and laws are state-oriented.
00:05:37.360 | So I'm licensed in New York, and so I can't practice in another state, and even if – so
00:05:47.560 | if a client comes to me and says, "Oh, I want to buy a house.
00:05:50.240 | I want to do this transaction in New Jersey," which is just a stone's throw away from
00:05:55.600 | Manhattan, I wouldn't even begin to attempt to do that.
00:06:00.840 | Quite frankly, the way real estate transactions occur are extraordinarily different in New
00:06:08.320 | York than other states from what I understand.
00:06:13.200 | In New York, I'd say there's somewhat more complexity and more formality.
00:06:20.720 | Many times, people that are out of state really don't understand how the real estate
00:06:28.960 | transactional type of approach is in New York until they – even banks don't really
00:06:35.520 | understand it.
00:06:36.520 | I mean, many times when I've had to close loans, out-of-state banks don't really
00:06:40.800 | get it if they're closing a loan, let's say, on a cooperative apartment.
00:06:45.720 | It takes – it's not really real estate.
00:06:47.720 | It's really stock in a cooperative corporation.
00:06:50.760 | So you really have to sort of understand what's going on.
00:06:53.040 | Each side has to have a separate attorney, which doesn't have to happen in other states.
00:06:58.560 | The real estate broker can't be the lawyer.
00:07:01.640 | The title company shouldn't be the attorney representing a party.
00:07:06.280 | So there is a lot more formality and a lot more – I don't want to say regulation
00:07:12.240 | but certainly rules that apply when you're dealing with New York state and certainly
00:07:17.620 | New York City.
00:07:18.620 | So the next question I'm going to ask and is – let's say I want to purchase a rental
00:07:27.440 | house and I'm trying to face the decision of whether I should just simply purchase that
00:07:32.640 | house in my own name or whether I should try to establish some kind of entity for whichever
00:07:41.040 | purpose.
00:07:42.040 | Is that even a question that can be answered on a national basis or is that entirely state-specific?
00:07:46.160 | Okay.
00:07:47.160 | Well, I can't speak for other states because, again, I don't practice there and I have
00:07:53.280 | no experience there.
00:07:55.360 | However, I'll make a general statement to this effect.
00:08:01.160 | When you're purchasing real estate or any type of rental type of property, if you're
00:08:08.560 | purchasing that asset in your name individually and there's some issue that arises along
00:08:18.320 | the lines of liability, somebody falls down in the house, the house blows up or some other
00:08:26.200 | incident occurs and somebody is looking to the owner of that property to sue them.
00:08:34.480 | If you own something in your individual name and certainly this is the case in New York
00:08:38.800 | and probably prevails throughout the United States, you're going to be individually
00:08:45.260 | responsible for what occurred, which means that your individual assets would be subject
00:08:53.520 | to that liability.
00:08:57.840 | What you're looking to do is limit your liability as much as possible.
00:09:03.160 | Now, how do you limit your liability?
00:09:05.200 | Well, the first order of business, of course, when you own any type of commercial entity
00:09:12.280 | is to get insurance.
00:09:13.280 | You're going to have liability insurance and certainly you should have a sufficient amount,
00:09:18.200 | particularly in this day and age when somebody falls down and they skin their knee, they're
00:09:22.840 | going to sue you for a million dollars.
00:09:25.560 | You want to make sure you've got sufficient liability if something happens on your property.
00:09:31.760 | In addition to that, particularly here in New York, what most commercial folks do is
00:09:39.760 | they will put the ownership into an entity.
00:09:44.040 | An entity will be typically one of two things.
00:09:47.120 | It will either be a limited liability company or it will be a small business corporation,
00:09:55.280 | you know, an S-type of a S-corp.
00:09:58.440 | When you do that, what ends up happening is that your liability is going to be limited
00:10:05.200 | to the value of whatever that property is because there's no individual ownership.
00:10:12.800 | They can't go past the value of that property and look at your individual assets.
00:10:18.600 | You may have individual assets of, I'll make this up, $5 million, but the house that you
00:10:23.960 | are owning there is a million.
00:10:26.360 | If it's owned in an LLC or an S-corp, that's all they could get.
00:10:32.640 | When you're buying any type of a real estate property or commercial property, nine times
00:10:40.960 | out of ten, you're going to want to put it into some type of entity for purposes of liability.
00:10:47.400 | Now, there may be other aspects to that as well that might give you some tax advantages,
00:10:56.880 | but really those are more individual issues and you really need to discuss that with your
00:11:02.440 | individual accountant and see how that's going to work.
00:11:06.280 | If you're just buying this yourself, it's just a one-person entity, then most of the
00:11:11.840 | income and expenses are going to flow through to you individually.
00:11:16.760 | If there are a lot of folks in the company or the LLC, then obviously there are different
00:11:23.820 | issues that you have to consider.
00:11:25.320 | I don't know if that answers the question, but I think that overall you really want to
00:11:31.040 | think about having an entity for purposes of liability, if nothing else.
00:11:36.160 | The challenge in that advice is how to figure out how to apply it to scale, meaning this.
00:11:43.920 | If I'm going to buy a 30-story apartment complex in New York City, without question, there
00:11:50.160 | will be an entity associated with it.
00:11:52.800 | But we're dealing on a very different scale versus me buying the house next door for $150,000
00:11:58.600 | and renting it out for $1,200 a month.
00:12:03.800 | When you size down the scale of the property and you start to think about the hassle, the
00:12:12.440 | expense of appropriately selecting the entity, of appropriately designing it and establishing
00:12:18.400 | it, if we're doing a corporation, when you think about the challenge of managing that
00:12:25.040 | separate corporation, pursuing the corporate formalities, when you think about doing that
00:12:30.480 | within the scale of one house, it becomes a little bit challenging.
00:12:34.280 | Then you go ahead and get another one and you say, "Well, should I do separate?
00:12:37.800 | Should I try to separate these houses?
00:12:39.280 | Should I try to run this as one entity with multiple houses underneath it?"
00:12:44.200 | It's a little bit challenging to know what's appropriate.
00:12:47.480 | So how would somebody in that situation know at what point in time they should pursue the
00:12:52.160 | hassle and the expense of working through an entity?
00:12:56.400 | Sure. I think that right at the beginning, even if you're doing a $150,000 house and
00:13:05.440 | in the New York City area, if you can find a $150,000 house, then that's great.
00:13:12.360 | But you're talking about properties here that tend to have much higher values.
00:13:19.120 | But even at the $150,000 level, the liability that you can incur because of things that
00:13:29.280 | can go wrong, such as someone getting injured, such as some catastrophe happening with respect
00:13:36.080 | to the property, it doesn't take that much time and effort and cost to consider taking
00:13:47.360 | the steps of doing it in an entity form.
00:13:52.760 | So what you need to do, as any good investor would, is A) and I tell this to people all
00:13:59.560 | the time and it's amazing.
00:14:01.060 | People come and they say, "Well, I'm thinking about buying this.
00:14:04.800 | What should I do?"
00:14:05.800 | And I say, "Do you have an accountant?"
00:14:07.920 | I'm an attorney.
00:14:09.600 | I'm not an accountant, but I say first because the accountant is going to have to keep the
00:14:14.300 | records of if you're having rent, if you're taking deductions such as depreciation, whatever
00:14:22.080 | you're doing, you're putting yourself into a world where you really need an accountant
00:14:25.800 | and you shouldn't necessarily be doing your own tax returns, although I know a lot of
00:14:30.760 | people do that with the programs they have out there now.
00:14:34.840 | But I always say, "Do you have an accountant?
00:14:37.440 | Speak to your accountant and then speak to me."
00:14:41.000 | And it doesn't cost that much to form an LLC and basically operate a single person through
00:14:49.640 | an LLC.
00:14:50.640 | Now certainly, once a client is aware of the issues, then certainly they can make their
00:14:59.120 | own choice.
00:15:00.440 | At a minimum, you'd go back to your fallback position, which is what I mentioned right
00:15:05.640 | at the beginning, and what you do is you have a lot of insurance.
00:15:10.120 | And that's really your first wall of protection.
00:15:14.660 | Make sure that you have a significant amount of liability insurance.
00:15:20.280 | And I think that a lot of people don't realize that it's not really that expensive and if
00:15:25.680 | you spend a couple of extra dollars, it's worth it.
00:15:29.960 | And on the individual level, you can go out and attach an umbrella policy and you can
00:15:36.560 | probably get those types of policies right through your auto insurance or other insurance
00:15:41.200 | that you may have, which will add another layer of protection.
00:15:45.400 | And you can see if that umbrella insurance would cover any liability that may occur with
00:15:52.080 | respect to property that you own.
00:15:55.440 | And the insurance company may say, "Fine, we'll cover it," and you pay X number of dollars
00:16:00.760 | more a year.
00:16:02.000 | But it's really worth it to get an extra million or two insurance just to be on the safe side
00:16:06.520 | and not have to worry about when somebody brings an action because they got injured
00:16:12.760 | on your property or a worker falls down or something occurs, that it's going to affect
00:16:18.880 | you personally and possibly ruin you financially for the long term.
00:16:27.680 | So I've decided to follow your advice and purchase my rental house within a legal entity.
00:16:34.880 | How do I choose the correct legal entity?
00:16:40.360 | In New York, many times LLCs have become very popular.
00:16:46.880 | There's what we call franchise tax that you have for a corporation and they're very easy
00:16:54.440 | to be formed.
00:16:57.000 | But either entity, whether it's an S-corp or an LLC, those are sort of the basic entities
00:17:04.560 | that people choose.
00:17:05.840 | And in LLC, basically you pick a name, it gets registered with the state just like an
00:17:13.200 | S-corp does.
00:17:15.200 | With a single entity, everything flows through to the individual owner, all of the tax income
00:17:22.200 | and expenses.
00:17:24.440 | So I'd say more often than not, you'll spend a little bit of money to create the LLC, but
00:17:33.640 | with the operating agreement, they'll be fairly straightforward and you'll be the managing
00:17:37.720 | partner, the managing entity, and you'll control the company in its entirety.
00:17:46.800 | So it's typically a very simple and easy way to move forward.
00:17:55.240 | And it might cost you a couple extra dollars on your taxes as far as your preparation,
00:18:01.960 | but it serves a good purpose.
00:18:05.320 | In my state, it's easy to establish an LLC.
00:18:09.440 | You can just go to sunbiz.org and set it up.
00:18:14.520 | You just simply file it, you pay the fee, and you get the boilerplate documents from
00:18:18.440 | the state.
00:18:20.240 | How do you decide if those boilerplate documents are sufficient for your real estate operating
00:18:25.840 | activities versus the need to establish custom documents?
00:18:31.360 | Well, obviously you would speak with a professional advisor, most likely an attorney.
00:18:40.000 | But I would say that for the most part, your basic operating agreement for an LLC for an
00:18:49.480 | individual is going to do the trick.
00:18:53.880 | It gets obviously more complicated when you've got partners and you need agreements and who's
00:18:58.040 | going to be the managing person and all of that, and who's going to make the decisions.
00:19:05.800 | Then you get into areas that are much more complex.
00:19:08.080 | And if you're doing S-Corps, you have shareholder agreements and things that get fairly complicated.
00:19:15.600 | But for the most part, following the roadmap that you just gave, you can read through it.
00:19:23.040 | There are some services out there that might provide you with a bit of an explanation.
00:19:30.520 | And like anything else you do now you have the internet, you can do your own research,
00:19:37.880 | so to speak, and understand what it is that you're dealing with, and then go ahead and
00:19:44.320 | begin.
00:19:45.320 | And like I said, speak with an attorney, speak with your accountant and other professionals.
00:19:52.840 | You know, it's always a good idea also to speak to people that are in the industry,
00:19:59.800 | so to speak, that do the same thing or have done the same thing that you want to do, and
00:20:06.120 | see what their experience is like and what they've done.
00:20:12.000 | And again, you can get this information online.
00:20:14.660 | You can probably find some real estate groups in your locality.
00:20:22.160 | And I'm sure that there are loads of networking places you can go to where real estate people
00:20:33.040 | meet whether it's real estate brokers, people that are investors.
00:20:36.600 | I mean, in New York, obviously, you can go to networking groups all day long and do nothing
00:20:41.760 | else.
00:20:42.760 | There's loads of them.
00:20:43.840 | So that's a good way to become experienced.
00:20:47.120 | Whenever I have clients coming in, they've never done something before and they don't
00:20:52.320 | have any experience, I just encourage them to go out and understand what they're doing.
00:21:00.280 | The most important thing when you're buying real estate, whether it's for investment,
00:21:05.440 | even for your own residence, is to understand what you're doing and to have a plan.
00:21:12.000 | Understand what the cost is, understand what the expenses are going to be, understand what
00:21:17.560 | the mortgages are about that you're going to incur liability for and how the mortgage
00:21:25.000 | is going to work.
00:21:26.000 | And it may very well seem daunting at first, but it's like anything else.
00:21:31.520 | Once you start to look into it, you become familiar, like anything you do.
00:21:37.080 | Buying a car.
00:21:38.080 | If you're buying a car, you're going to go online.
00:21:39.960 | You're going to go do a lot of research and say, "Listen, which is the best economy car
00:21:45.080 | in its class?
00:21:46.080 | Do I like this?
00:21:47.080 | Do I like that?"
00:21:48.080 | You're going to go into 15 dealers.
00:21:49.920 | And so you do the same thing when you're buying real estate.
00:21:53.120 | And it's a very important thing because you're risking a lot of money.
00:21:59.080 | Because not only are you risking the money you're putting in, that's personal assets
00:22:02.440 | that you have, many times you're going to go and get financing.
00:22:07.320 | And so if your rental property is not going to work out, you're going to end up like a
00:22:12.320 | lot of people have over the last 10 years, getting stuck in a situation that you can't
00:22:21.480 | afford.
00:22:22.840 | And that's the last thing you want to do because it's the last project you're going to be in
00:22:26.920 | because you're going to ruin your credit and you're going to not be able to succeed as
00:22:32.240 | you wanted to do.
00:22:33.880 | So I may have diverged off of your original question, but I think that due diligence,
00:22:41.400 | understanding what you're doing, getting as much information as you can, speaking to as
00:22:45.520 | many people as you can, and understanding the different aspects of the investment and
00:22:52.120 | the entity that you're going to be using will be worth your while.
00:23:00.080 | So that's the most fundamental advice I could give to anyone really in any field, but particularly
00:23:08.200 | when they're starting to look to invest in real estate.
00:23:13.560 | Let's say that my highest priority in my real estate activities, whether it's for personal
00:23:20.880 | properties that I want to own for my own use or whether it's for rental activities, is
00:23:26.080 | privacy.
00:23:28.120 | And I'm willing to pay for that privacy.
00:23:30.680 | How do I purchase and own real estate in the most private way possible such that it would
00:23:36.240 | take a very determined investigator a very long time to be able to connect the ownership
00:23:42.400 | of a property with me?
00:23:45.280 | Well, it sort of goes back to what entity do you want to use?
00:23:51.400 | So obviously if you buy something in your individual name, somebody can find out who
00:23:59.400 | owns that property very easily by just looking at the land records and seeing who owns the
00:24:05.920 | deed.
00:24:06.920 | So that gives you no privacy.
00:24:09.040 | And just as a note, and I'm not sure how the records are down in Florida or West Palm,
00:24:16.120 | a number of years ago here in New York City, they introduced probably the best system imaginable.
00:24:27.640 | It's called ACRIS, and I don't remember what ACRIS stands for, but it's A-C-R-I-S.
00:24:35.480 | And for the five boroughs of New York City, you can look up all of the real estate recorded
00:24:43.400 | documents for any piece of property.
00:24:47.160 | So if I'm looking at a property in Brooklyn or Manhattan or wherever it is, I can basically
00:24:52.800 | go to my computer and I can look up by what we call block and lot or by address or name,
00:25:00.480 | and I can find that property and I can look at the deed, I can look at the mortgage, I
00:25:04.400 | can look at all of the recorded documents.
00:25:07.680 | So it's a marvelous system to understand what's going on with any piece of real estate.
00:25:15.520 | And like I said, if it's in your individual name, I can tell you in five minutes who owns
00:25:20.400 | that property.
00:25:21.400 | Now, if the property's owned in the name of an LLC or a corporation, obviously you're
00:25:26.600 | going to see ABC Corporation.
00:25:28.560 | Well, again, you're not going to know who owns ABC Corporation.
00:25:33.240 | So then if I'm looking to do an investigation, what would I do?
00:25:38.000 | Well, I might look at the tax records, try to see where it's sent.
00:25:42.640 | It might be ABC Corporation, Care of, John Doe or something like that.
00:25:50.400 | Or I can go and look at the certificate of incorporation or the filing certificates for
00:25:54.520 | the LLC and see if there's a ... because there'll be an individual name many times mentioned
00:26:00.720 | in those documents so that I can find that individual and see who's connected with the
00:26:07.800 | corporation.
00:26:08.800 | Now, obviously if you're getting more sophisticated and you're getting into other levels, you
00:26:16.240 | can have one entity owning another entity.
00:26:20.120 | And then you have various layers of entities owning various pieces of property.
00:26:26.040 | So you have ABC Corporation owning XYZ Corporation, which then owns the property.
00:26:33.320 | So depending upon how much secrecy you want, you can try to create as many layers as possible.
00:26:46.720 | At the end of the day, if I really want to find out about something in this day and age,
00:26:53.520 | you can probably trace something back if you were caught enough at it.
00:26:59.200 | Right, right.
00:27:00.200 | And I'm not here referring to ... I mean, you give the FBI warrants and time and there's
00:27:08.480 | almost no secret that can be kept.
00:27:10.320 | So I'm not referring here to ...
00:27:11.320 | Yeah, exactly.
00:27:12.320 | No.
00:27:13.320 | But you know what?
00:27:15.040 | I can dial up a private investigator, which in my practice we use now and again for various
00:27:21.840 | things, which is no bad connotation.
00:27:25.080 | But many times we need to find a person that's disappeared or we need to get more information
00:27:31.000 | about something that's going on that we just can't necessarily get ourself.
00:27:36.160 | And lo and behold, there's so much information out there.
00:27:40.880 | There's just so many avenues to find stuff that ... I don't know what your newspaper
00:27:49.160 | is down there, but up here you can read the New York Post and everybody's life is on the
00:27:54.320 | front page.
00:27:56.000 | So there's not much you can hide.
00:27:59.240 | So in real estate, there are two things that I often hear about, and I'm not sure how ... I
00:28:05.920 | wouldn't expect this to be a major part of your practice.
00:28:07.920 | So feel free to say, "Hey, this is not something I'm interested in."
00:28:10.800 | But I hear a lot, "If you're interested in privacy about establishing an Illinois land
00:28:15.360 | trust or using a New Mexico LLC, because they can be established to be more private."
00:28:26.880 | Are you aware, first of all, of those two tools as means to accomplish this goal?
00:28:33.760 | I'm not, so I can't really speak to it.
00:28:38.560 | But I can, again, I would just say that I'm not sure at the end of the day how private
00:28:48.040 | you can ultimately be.
00:28:49.880 | I mean, you've seen what's gone on, and it may very well be that by using those entities
00:28:55.840 | and using trust companies and having them establish certain ownership interests for
00:29:01.800 | you, you might be able to create an extra level of privacy.
00:29:09.440 | But you've seen with the various offshore companies and offshore accounts and all of
00:29:21.440 | the other things that recently have been disclosed, there's fewer and fewer places to provide
00:29:31.760 | that.
00:29:32.760 | And it will create that type of lack of detection.
00:29:39.520 | My concern primarily, and the reason I'm broaching these questions is, do you remember, what
00:29:43.320 | was it, a year or two ago that dentist shot the lion in Africa?
00:29:48.200 | And then was pilloried by the US American society around him for shooting the lion.
00:29:56.880 | As far as I'm concerned, that story should be an incredible wake-up call to it and to
00:30:02.320 | people.
00:30:03.440 | And one of the benefits that we have in today's world is free and easy communication.
00:30:08.480 | So it's a wonderful thing that almost any person can have a simple platform for publishing
00:30:14.920 | information, and it goes out without censorship and without restrictions.
00:30:19.040 | The problem is that we have created in this country such a polarized society where people
00:30:26.360 | feel so strongly about just destroying other people.
00:30:29.720 | And whether it was, who was it, the dentist who shot the hunter, and they destroyed his
00:30:38.120 | business, just absolutely destroyed his business.
00:30:40.320 | He had to lock his doors.
00:30:42.120 | Or the one where Indiana, the pizza maker in Indiana, where the guy, I think the guy's
00:30:48.120 | daughter goes on TV to do an interview about homosexual marriage in Indiana, and he just
00:30:52.960 | destroyed his business overnight.
00:30:54.640 | And he had to shutter his doors.
00:30:56.680 | And so one of the concerns that I have is for any person, if you – the dentist just
00:31:02.800 | went out for a normal hunt just the normal way that he did with his big game hunts.
00:31:10.760 | As far as I know, although I know there were people that were concerned about some of his
00:31:15.420 | practices, but I never saw any evidence to indicate that he knowingly committed a crime.
00:31:22.680 | And all of a sudden, everything was destroyed.
00:31:24.880 | So in that circumstance, if I were that dentist, and obviously he was wealthy, I mean, his
00:31:29.960 | hunts like that are costing tens of thousands of dollars, I would be very concerned about
00:31:35.080 | making sure that the Internet police aren't going to have easy access to knowing to what
00:31:41.320 | I own and where I hold it.
00:31:43.560 | And I'm very concerned about, as people build wealth, their ability to maintain privacy.
00:31:48.200 | Now, the Internet police are also pretty capable investigators and researchers.
00:31:52.200 | There have been some interesting stories done where people pull out details and just individual
00:31:57.680 | people collaborating can basically expose every detail of your life.
00:32:02.960 | But I'm very concerned about this trend and I'm very concerned about people taking
00:32:09.160 | simple steps to protect themselves before they wind up on the front page of the newspaper.
00:32:14.680 | Right.
00:32:15.680 | No, I agree with you.
00:32:18.600 | Because of the advent of the communication systems that we have today, the Internet and
00:32:25.600 | all the social media, literally with a push of a button, information goes out and it's
00:32:33.880 | worldwide.
00:32:34.880 | It used to be years ago, obviously, all you had was the print media and some TV and some
00:32:42.520 | radio and whatever.
00:32:44.280 | But of course that's changed now.
00:32:46.080 | And there is a, as they say, it's the gotcha society where everybody's trying to get
00:32:59.400 | someone because it just sort of, let's put it on YouTube and have the video of the guy
00:33:06.440 | shooting the lion or whatever it might be.
00:33:09.040 | So yes, it's a problem.
00:33:10.960 | And, you know, it's very, it's almost impossible to control entirely.
00:33:16.480 | And I agree with you that whatever you do, you know, you should take whatever steps you
00:33:22.760 | can to, you know, maintain your privacy and keep things under control.
00:33:30.320 | I think a lot of times things happen when they get out of control.
00:33:35.840 | And so as long as you follow, you know, at least attempt to follow the rules and, you
00:33:41.480 | know, do what's, you know, what you're supposed to do.
00:33:46.440 | You know, problems arise when you step over boundaries.
00:33:53.760 | You know, in New York City, you may remember about six months ago, there was this gigantic
00:34:00.960 | explosion that killed some people in a restaurant.
00:34:03.400 | It was downtown Manhattan.
00:34:06.640 | And why did it occur?
00:34:08.600 | It occurred because the folks were, you know, if I remember, you know, connecting gas lines
00:34:16.680 | and doing construction and other things that were outside of the building codes and not
00:34:23.200 | getting proper permits to do what they were supposed to do.
00:34:26.880 | Now, you know, you may save a couple of dollars if you do that, but the long term consequence
00:34:34.080 | doesn't really pay.
00:34:36.040 | So you know, yes, you can, you know, put your real estate holdings in an entity and, you
00:34:42.080 | know, run your properties in a professional way.
00:34:46.480 | You know, if you go out and run your properties in an unprofessional way or a way that tries
00:34:52.640 | to skirt the rules and regulations, even if you don't think those rules and regulations
00:34:58.200 | are appropriate, well, then you're going to have problems because people are going to
00:35:01.280 | start to complain.
00:35:02.920 | You know, then they're going to, you know, send information out that you're, you know,
00:35:08.240 | a bad guy or whatever it might be.
00:35:11.000 | And then you're going to have people starting to look at, you know, what's going on.
00:35:16.840 | You know, so if your grass is growing on your property and it's, you know, over the top
00:35:21.240 | of the building, you know, people are going to start to complain to the town and the town's
00:35:25.080 | going to say, "Who owns this house?"
00:35:26.400 | And we're going to start to fine you.
00:35:28.880 | And pretty soon, you know, the neighbor's going to call the six o'clock news and they'll
00:35:33.240 | bring the cameras out and say, "Oh, look at these people.
00:35:36.200 | Look at how they're running this house.
00:35:37.640 | They've got, you know, chickens in the backyard and they, you know, don't cut their grass."
00:35:41.760 | And all of a sudden, you know, you're a media star that you didn't want to be.
00:35:49.920 | So I think that part of it is not only how you own things, but it's how you conduct yourself
00:35:59.080 | and how you conduct your business.
00:36:01.160 | There's no guarantees, but as long as you do things professionally and in a way that,
00:36:09.840 | you know, is supposed to be done, so to speak, you lower the risk of, you know, things going
00:36:19.480 | wrong.
00:36:20.480 | Again, no guarantees and things, you know, as they say, things can go wrong.
00:36:26.600 | You know, if they can go wrong, they will go wrong.
00:36:29.000 | But you know, don't do anything, you know, just haphazardly.
00:36:33.840 | If you're going to be a real estate investor, you know, don't go into it and say, "Oh, you
00:36:37.880 | know, so-and-so did this.
00:36:40.000 | I'm going to make a million dollars," because it's almost a guarantee that you're going
00:36:42.840 | to lose.
00:36:43.840 | You've got to understand what you're doing.
00:36:45.480 | You've got to be professional.
00:36:47.240 | You've got to, you know, as they say, dot your I's, cross your T's, and try to do everything
00:36:54.000 | as best you can.
00:36:56.000 | And if you do that, I think, you know, most of the time, you're going to come out ahead
00:37:02.840 | and you're going to also feel good about what you're doing.
00:37:05.920 | So that would be, again, you know, another very important line of advice that I would,
00:37:11.160 | you know, give.
00:37:12.520 | Yeah.
00:37:13.520 | I fully agree with that advice.
00:37:15.680 | I think all of us should walk in the light in everything that we do.
00:37:19.880 | You know, when I prepare my tax returns, a question I ask myself is, "Am I ready to
00:37:24.720 | hit publish and publish this on the internet?"
00:37:28.160 | Because it's certainly been a transition for me going from a private, somewhat anonymous
00:37:34.000 | person to being a public figure, and to some degree, I come under-I feel that burden of
00:37:41.440 | scrutiny.
00:37:44.000 | And I agree with you that our business practices must be excellent in everything that we do.
00:37:48.880 | We must be excellent.
00:37:50.800 | I don't want to go back to the world of filters and sensors and et cetera.
00:37:56.520 | I don't want to go back because the fact that anybody in the world can pull out their cell
00:38:01.920 | phone and point it at a police officer or point it at an agent of government or point
00:38:08.480 | it at a gang member or something like that, record and live stream that video to the world
00:38:13.960 | – that is an incredibly positive thing and it will lead, as it has already been leading,
00:38:20.760 | systematically to the rollback of oppression and to the expansion of liberty.
00:38:25.360 | My concern is with that, we've lost the gatekeeping function.
00:38:30.080 | And so historically, if the newspaper reporter came out and interviewed you, the newspaper
00:38:34.960 | reporter first had a professional reputation to maintain of doing an excellent job.
00:38:40.560 | Then they had an editorial staff and a fact-checking staff who would say, "Can you prove this?
00:38:45.200 | Is this documented?
00:38:46.200 | Do you have this interview?
00:38:47.200 | Do you have this evidence?"
00:38:48.600 | And so then when the story was published, there was a higher likelihood that it was
00:38:54.600 | true.
00:38:55.600 | Well, in today's world, there's no accounting for truth.
00:38:59.440 | Nobody is liable for it.
00:39:01.160 | Anybody can say anything that they want and something can go viral in moments without
00:39:08.960 | anybody having control over it.
00:39:11.120 | And so the best example is from time to time, there was a big one six months ago when Mark
00:39:15.360 | Zuckerberg established one of his charitable trust or whatever and it said if you post
00:39:20.000 | this – no, it was the Facebook privacy thing about, "Hey, I'm posting this because
00:39:23.580 | Facebook is going to take my property.
00:39:25.160 | Facebook, you do not have permission."
00:39:26.480 | Well, this thing is a total hoax but people lack – most people lack any ability or like
00:39:33.320 | just desire to fact-check anything.
00:39:35.660 | And so they spread misinformation widely and you put these things together, it leads to
00:39:39.940 | a recipe of – it leads to a real risk that you have to protect yourself not only from
00:39:48.420 | the dangers of misbehavior, doing gas work without permits and appropriate safety precautions
00:39:55.380 | but you also have to protect yourself from the danger of somebody spreading malicious
00:40:00.740 | unfounded allegations or perhaps even more importantly in the world we live in today
00:40:05.940 | of somebody taking issue with you based upon a political or moral stance.
00:40:10.980 | I come back again to the baker in Indiana whose business was essentially destroyed because
00:40:16.540 | they had the unfortunate circumstance of having a politically unpopular opinion and being
00:40:20.700 | interviewed about it on the news.
00:40:22.420 | The activists came in, destroyed the Yelp site, had to shut the business down for a
00:40:26.180 | few days.
00:40:27.180 | I've never gone back and followed it up to see where things are today.
00:40:30.060 | Those were – that was based not upon any misbehavior.
00:40:33.460 | That was not based upon discrimination in business practice.
00:40:36.380 | That was not based upon mistreating of employees or breaking any laws.
00:40:40.980 | That was based upon an ideology, a political ideology of disagreement and saying let's
00:40:46.380 | use these tools and let's spread it.
00:40:49.900 | And it's actually a major concern.
00:40:51.300 | I mean I was stunned to see – I don't know if you saw the article in the New York
00:40:54.300 | Times a couple of weeks ago where the Obama administration admitted that in the wake of
00:41:01.980 | the Iran negotiations that they had seasoned and salted the experts in advance of that,
00:41:08.900 | all of the social media experts in advance to say kind things about the Iran deal.
00:41:16.300 | This official admitted in print in the New York Times as a named source, not in any kind
00:41:21.220 | of anonymous off the record, as a named source, yeah, we went ahead and we positioned these
00:41:26.460 | things.
00:41:27.460 | We positioned these experts, I think it was 40-something experts out there to agitate
00:41:32.940 | for our position and this was publicly admitted.
00:41:37.400 | So in the climate of these things with regard to wealth, the concern is this is a major
00:41:42.820 | risk that we have to take steps to protect ourselves.
00:41:46.340 | Those steps come by keeping to ethical, careful business practices that we should always be
00:41:52.740 | proud for our books to be shown to the light of day.
00:41:56.100 | We should be proud to invite any news camera, any crew onto our property to demonstrate
00:42:01.140 | what we're doing in the activity.
00:42:03.200 | But we also have to be thoughtful in how we prepare for baseless allegations which people
00:42:12.020 | could assume to be true either because they lack the ability to fact check and research
00:42:16.980 | them because in the press there's no innocent until proven guilty, there's guilty until
00:42:21.060 | proven innocent.
00:42:22.060 | Thankfully, the courts still have a different standard but in the press that can destroy
00:42:25.780 | a business overnight.
00:42:26.780 | Of course, I understand.
00:42:27.780 | So I didn't mean, sorry, I used that as my soapbox but it's a concern for me.
00:42:34.860 | But I think what you say is just sort of fundamental and in the United States people have the greatest
00:42:45.820 | liberty in the world and because of the liberty there are certain aspects to it that you can't
00:42:55.540 | necessarily control.
00:42:56.940 | But I think that just being diligent and understanding it like you said is very important.
00:43:04.220 | So did you want me to say a few words about estate planning and getting into the topic?
00:43:12.980 | Yes, you stole it all.
00:43:13.980 | I was just going to go there.
00:43:14.980 | I'm going to go to the segue and segue in there.
00:43:18.100 | So tell me about how this different type of entity ownership can affect probate in the
00:43:24.100 | settlement of our estate, please.
00:43:25.940 | Sure, yeah.
00:43:28.740 | And it's important because when you own, no matter what you own, again, it's important
00:43:34.700 | to have a plan.
00:43:35.820 | So you own a house in your name, you own a house in an LLC, you own a house in a corporation,
00:43:40.180 | but what happens with respect to your estate if something happens to you?
00:43:47.740 | Well the most important thing that anybody should, that everyone should consider is that
00:43:54.340 | they first need, that they should have a will.
00:43:56.980 | They should do their will.
00:44:00.060 | Because if they don't have a will, and this is statewide, all states are the same, if
00:44:07.260 | you don't have a will, your assets are going to go pursuant to the laws of the state.
00:44:13.740 | So for instance, in New York, if you don't have a will, you die without a will, in New
00:44:18.940 | York your assets are going to your spouse and children, and if you don't have a spouse
00:44:24.380 | or a child, it's going to go to your parents, your parents going brothers and sisters, nieces
00:44:29.300 | and nephews, and on down.
00:44:31.900 | Problem that presents is that you don't have the opportunity to plan who's going to get
00:44:37.180 | what.
00:44:38.180 | Now obviously if you have a wife and children, that's sort of, most of the time, easy, although
00:44:44.020 | you know, it may very well be that you don't want a child to have control over assets or
00:44:50.500 | have all of the assets or you've made gifts over time to one child and you're going to
00:44:56.820 | benefit other children in your will.
00:45:00.060 | But in many cases, folks don't have a spouse or children, and their parents may be the
00:45:08.460 | people next in line, and it may not be the best estate planning to leave your assets
00:45:14.900 | to your parents, who may be elderly and not in a position to either handle those assets
00:45:25.940 | or it may very well affect the parents' estate plan by loading up all of those assets into
00:45:33.740 | their estate.
00:45:35.900 | And then you get down to brothers and sisters and nieces and nephews, and again, who do
00:45:39.580 | you really want to benefit?
00:45:41.900 | So the most important thing is to actually think about doing a will so you have a plan
00:45:49.260 | in front of you.
00:45:51.340 | And then once you take that step, then you have to think about, "Okay, well, I'm doing
00:45:56.140 | my will.
00:45:57.300 | What do I want my will to say?"
00:46:00.540 | And again, I think, you know, nowadays you can go online and you can do a will and you
00:46:06.700 | can look at all of this information, and many people do that.
00:46:12.140 | But I think that particularly if you're owning property and there are significant, potential
00:46:20.300 | significant consequences to what you're doing, again, it's a good idea to sit down with a
00:46:26.580 | professional so you can understand, you know, A, what is the will going to accomplish, and
00:46:35.060 | B, you know, what's the best way to have this document signed and executed so it will be
00:46:43.700 | effective?
00:46:44.940 | And another important aspect here, and again, I talk about these things because in my experience
00:46:51.460 | it's the most ignored or misunderstood area.
00:46:57.200 | People need to understand what a will can do for them.
00:47:00.140 | A will is going to control an asset that's in your name alone.
00:47:04.020 | So if I have a piece of real estate that's in my name or in a company that I control
00:47:07.660 | entirely, that, the will's going to say where it goes, pursuant to the will provision.
00:47:14.340 | But if I own something jointly with somebody else, so let's say I own the real estate,
00:47:19.620 | but it's jointly owned with my wife or with my brother or my friend, right, that property
00:47:25.420 | is going to automatically go to that person if you own it as joint tenants with rights
00:47:29.460 | of survivorship.
00:47:30.620 | And I'm pretty sure, I mean, again, I'm talking New York law, but, you know, for the most
00:47:34.380 | part I think the laws are pretty uniform along those lines throughout the country.
00:47:38.860 | So people don't really consider all of the aspects of their plan, and that same rule
00:47:45.180 | is going to control with respect to assets that have beneficiaries.
00:47:50.180 | So let's say you have a retirement account, let's say it's a 401(k), let's say it's a
00:47:54.700 | pension, let's say it's an IRA, or let's say you have life insurance.
00:47:58.540 | All of those assets can have designated beneficiaries.
00:48:03.220 | So when you put that beneficiary on there, when you die, that asset is automatically
00:48:08.300 | going to go to that person, regardless of what your will says.
00:48:12.780 | So people sit down and they think about, "Well, I'm going to do my estate plan, I'm going
00:48:16.020 | to write my will, and I'm going to say, 'Okay, leave everything to so-and-so.'"
00:48:20.260 | But they don't remember that 20 years ago, you know, they put a different person on as
00:48:25.900 | the beneficiary of, let's say, their IRA when they opened it up and they went into the bank
00:48:30.300 | and they sat down and they filled out the form, or they put them on their insurance,
00:48:33.620 | or they've got these various things through their employer that they filled out 20 years
00:48:39.660 | ago when they first started to work there.
00:48:42.020 | So a lot of times I'll sit down with clients, I'll say, "Okay, what are your assets?
00:48:45.380 | You own this, you own that.
00:48:47.100 | And who's your beneficiary on your retirement account, your 401(k)?"
00:48:53.180 | And they'll say, "Oh, I don't really remember.
00:48:54.540 | I filled it out such a long time ago.
00:48:56.180 | You know, maybe it was my brother because I wasn't married back then, or my life situation
00:49:01.660 | has changed and I put my parents down and I don't want my parents to get it because
00:49:05.380 | it's going to screw up their estate plan.
00:49:08.540 | You know, they shouldn't have all this money into their accounts now."
00:49:12.460 | So when you sit down, you've got to think about all of these things.
00:49:15.940 | You've got to think about what you own.
00:49:17.820 | You have to think about how you own it, and then you have to develop a plan that's going
00:49:23.220 | to reflect what your intentions are.
00:49:26.420 | And these intentions and circumstances can change over time.
00:49:29.540 | So you constantly have to think about whether or not you should update your will.
00:49:34.060 | Now, obviously you don't have to update a will every other day, but you know, five years,
00:49:37.860 | 10 years, situations change.
00:49:39.780 | People die.
00:49:40.780 | People are no longer intended to be beneficiaries.
00:49:46.180 | So you really have to consider all of these aspects.
00:49:50.460 | And you know, it's just part of, if you're going to take on the responsibility of owning
00:49:56.300 | stuff and building up an estate, you should make sure that an estate can benefit somebody
00:50:05.900 | in the future pursuant to what your wishes are.
00:50:08.980 | And you really need to think about estate taxes as well.
00:50:12.500 | Now, on the federal level, you don't have to worry about estate taxes until you get
00:50:16.740 | to, I forgot the exact number this year, it's 5.4 million, I think 5.435, something like
00:50:22.460 | that million dollars.
00:50:23.940 | So anybody that can have an estate, you're not going to have federal estate tax if your
00:50:28.340 | estate is under that number.
00:50:31.020 | And if you have a spouse, everything you give to your spouse, you give to them tax free.
00:50:37.260 | That's what we call a 100% marital deduction.
00:50:40.900 | So technically speaking, on the federal level, two people that are married can dispose of
00:50:47.460 | over $10 million of assets without worrying about any, you know, with proper planning,
00:50:55.900 | without worrying about any federal estate tax.
00:50:58.780 | Now, on the local level here in New York State, the cutoff point is, I forgot what it is exactly,
00:51:04.740 | is 4 million something, and within a year or two, it's going to be equal to the federal
00:51:11.580 | exemption as well.
00:51:12.900 | I know down in Florida, I don't believe you have an estate tax at all.
00:51:17.260 | And I don't believe you have any local state tax as well.
00:51:21.660 | So depending on the jurisdiction that you're in, you know, state income tax.
00:51:26.620 | So depending on the jurisdiction you're in, you know, you have different considerations
00:51:31.140 | and different impacts, you know, that may occur.
00:51:35.620 | So it's important to sit down with your professional advisors, and it's important to plan this
00:51:40.220 | out.
00:51:41.220 | You know, some people do regular wills, some people do what we call living wills, you know,
00:51:46.620 | where they put everything in a living trust, where they put everything in a trust right
00:51:52.300 | away.
00:51:53.300 | So, you know, those are all planning vehicles that people need to think about and discuss
00:52:01.340 | so they understand.
00:52:02.340 | And again, you can go on the internet, you can learn a lot about this.
00:52:06.300 | You know, I have a website that has loads of articles about real estate, about wills.
00:52:15.020 | I publish a blog every week, a New York Probate Lawyer blog, where I publish an article every
00:52:20.860 | week about, you know, some aspect of probate law or guardianship.
00:52:27.180 | So there are loads of resources that people have at hand where they can learn about, you
00:52:34.740 | know, these different areas, and they should take advantage of it.
00:52:37.900 | Yeah, it takes a little time and effort, but it's well worth it to make sure that things
00:52:42.960 | occur.
00:52:43.960 | I mean, every day I'm involved with cases in the surrogates court, which is the probate
00:52:48.340 | court here in New York, where things just weren't done right and people are fighting
00:52:54.940 | about various things, whether it be will contests or other things.
00:53:00.300 | I mean, you know, I've seen cases where people do wills and then, you know, they end up doing
00:53:06.140 | another will and they don't tell people about it.
00:53:08.260 | And then the second will is found and they're fighting about whether or not that will is
00:53:12.140 | valid.
00:53:13.140 | You know, recently in the news you read about Summer Redstone, who was the, you know, head
00:53:22.780 | of Viacom, and there is a trial going on as to whether or not his, you know, this woman
00:53:31.100 | who he was friends with has the right to make decisions for him and whether there's a health
00:53:39.300 | directive that's valid that he signed for her.
00:53:43.420 | And you know, this fellow obviously is suffering from dementia and, you know, he has to go
00:53:47.780 | through a trial to see, you know, who's going to make decisions for him.
00:53:52.180 | And this is a fellow who's, you know, the head of Viacom that owns CBS.
00:53:57.700 | So you know, no matter what you do, you know, you read every day about all of these, you
00:54:02.900 | know, these issues.
00:54:04.580 | You could just recently, Prince, you know, died and apparently didn't have a will.
00:54:10.660 | And you know, so they have all these relatives saying, "Oh, you know, I'm his next of kin.
00:54:13.700 | I'm his sister.
00:54:14.700 | I'm his, you know, half-sister and brother and I should share his estate."
00:54:19.020 | I'm sure if he had, you know, if he had the opportunity to go back and change this, you
00:54:24.700 | know, he'd say, "Well, I want, you know, this to happen."
00:54:27.820 | Maybe he'd want to set up a foundation or give some of his works to a charity.
00:54:33.260 | Who knows?
00:54:34.260 | But if you don't do it, you know, you can't, you know, can't see it fulfilled.
00:54:38.780 | So that again is, you know, some very important advice that I would give to folks to, you
00:54:45.660 | know, think about these things and understand it in connection with all of their real estate
00:54:49.700 | and, you know, whatever assets they have.
00:54:52.140 | You know, it's the, you know, it's just one part of being, you know, responsible about
00:55:01.220 | what's going on in your life.
00:55:04.180 | So there's one final question for you specifically with regard to probate and specifically with
00:55:10.300 | regard to real estate.
00:55:14.380 | One of the most valuable benefits of real estate is that – excuse me.
00:55:20.600 | One valuable aspect of real estate is that it's capital property.
00:55:25.060 | And so at the death, at my death, if it's capital property, my capital property that
00:55:31.180 | I leave to my heirs will receive a step up in tax basis.
00:55:34.140 | So for the benefit of the audience, if I buy the property for $150,000 and I die – excuse
00:55:40.020 | me.
00:55:41.020 | I own the property and let's say I want to sell it for $450,000.
00:55:44.820 | Well, if I sell it while I'm alive, I'm going to incur $300,000 of taxable gain and
00:55:51.620 | I'll owe income tax on that taxable gain.
00:55:54.620 | But if I die and leave that capital property to my beneficiaries, they will inherit it
00:55:59.960 | and at the time of death, it will – they will inherit it with a tax basis of $450,000.
00:56:07.660 | And as long as I am – as long as I can avoid the estate tax by simply being under the exemption
00:56:14.540 | amounts and let's assume that for the sake of simplicity because if I have an estate
00:56:19.820 | that's in excess of the exemption amounts, I have a $50 million estate.
00:56:22.940 | I've got a plan for the estate tax that would be due on that.
00:56:25.720 | But here we're just talking about a person with a couple of rental houses.
00:56:28.740 | If I die and leave that $450,000 property to my beneficiaries, they can then take it,
00:56:34.900 | turn around.
00:56:35.900 | They can sell that property and they'll have $450,000 that comes to them completely
00:56:40.620 | income tax-free and – income tax-free which is really nice.
00:56:45.580 | Now if I own that property within a corporation, an LLC or a trust, let's just restrict it
00:56:52.660 | to an LLC or a corporation.
00:56:55.360 | What is the tax treatment of that rental house for my heirs with regard to them receiving
00:57:02.340 | the property?
00:57:03.340 | Okay.
00:57:04.340 | Sometimes that can be an issue because you may not get within the entity the same step
00:57:14.300 | up in basis.
00:57:17.920 | So it is something that you need to look at closely and you need to understand it within
00:57:23.900 | the context of your estate and how your ownership of the property is going to benefit you while
00:57:33.060 | you're alive and ultimately what your plans are for that property.
00:57:39.940 | You're going to be selling the property.
00:57:41.380 | You're going to be taking the proceeds and then reinvesting it during your life.
00:57:47.820 | But I have run across that issue in the past and I don't recall the exact provision under
00:57:55.340 | the tax code, but I do recall that there have been issues as to whether or not you can get
00:58:01.980 | that same step up in basis because you don't own the property individually and it doesn't
00:58:09.340 | get stepped up inside of the entity.
00:58:15.980 | So you may not get that same benefit with respect to the step up and then when you sell
00:58:21.940 | it, obviously, or the estate sells it or the beneficiary sells it, ultimately you may end
00:58:28.140 | up with some type of an income tax gain.
00:58:33.880 | So again, it is something you need to look at in your overall plan.
00:58:37.300 | I'll have to keep digging into that.
00:58:39.620 | It's a question I was thinking about the other day and I didn't know the answer because I
00:58:44.340 | guess it would depend on the valuation of the shares.
00:58:46.540 | So an S-Corporation and LLC are both pass-through entities, so we would have to value the member
00:58:51.860 | units or the shares in some way.
00:58:55.380 | It's interesting.
00:58:57.380 | I'll have to keep looking.
00:59:01.940 | I have come across and I can't recall this section of the tax code, but I think that
00:59:07.740 | there have been issues about getting the step up because of the intervening layer of the
00:59:13.580 | entity.
00:59:14.580 | Right.
00:59:15.580 | Right.
00:59:16.580 | And really what that points you to is that no matter what you do, you need to look at
00:59:22.980 | it and understand what you're doing in the context of how you want to plan this out so
00:59:28.420 | you understand what the consequence will be with respect to what you're doing and then
00:59:34.100 | weigh what you're doing or what the potential result would be from what you're doing against
00:59:42.700 | not doing it or doing something else.
00:59:44.880 | And then you can make what we call a good business decision.
00:59:47.460 | Indeed.
00:59:48.460 | Jules, your website is JulesHasAttorney.com and I'll link that in the blog post and show
00:59:58.420 | notes for today's show.
00:59:59.420 | Any other websites or resources that you'd like to share with my audience that would
01:00:02.980 | be helpful to them?
01:00:05.300 | I think that obviously my website is helpful and I have a blog as I said.
01:00:15.660 | I do this myself.
01:00:17.260 | You can just type in estate planning.
01:00:21.700 | You can type in anything on real estate.
01:00:24.060 | When I have issues or questions, you can just go surf the web.
01:00:28.660 | I mean there's not one particular area that I would suggest or recommend but anything
01:00:35.340 | that you're looking at, obviously look at more than one site because you're going to
01:00:41.500 | get additional information and then you're going to be able to assess the value of the
01:00:48.580 | site that you're looking at.
01:00:49.980 | Obviously some sites have more information or more detailed information and may really
01:00:54.380 | hit the mark on the question that you're asking.
01:00:57.820 | And your tax questions, again, you can look them up.
01:01:02.620 | It's an amazing thing.
01:01:03.780 | I always wonder how all that information gets out there.
01:01:06.660 | It's amazing but it's there.
01:01:09.260 | It's like I need this information, I need a recipe, boom.
01:01:12.940 | You punch the button and you got it.
01:01:15.060 | Indeed.
01:01:16.060 | Jules, thanks so much and I'd remind the audience if anybody is in the New York area or New
01:01:21.700 | York State and they're looking for an attorney, Jules specializes in probate, estate planning,
01:01:25.660 | any real estate work, closings, guardianship, state settlement, estate litigation, those
01:01:29.660 | types of things.
01:01:30.660 | And Jules, you offer free consultation, 212-355-2575 for any New York based listeners, right?
01:01:37.340 | Absolutely.
01:01:38.340 | Great.
01:01:39.340 | Jules, thanks for coming on the show.
01:01:40.340 | Okay.
01:01:41.340 | Thank you very much for having me and have a wonderful day.
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